World Bank – Montenegro Partnership Country Program Snapshot April 2016

Montenegro Country Program Snapshot

to 67 for both sexes; simplifying business and tax registration under the one-stop-shop concept; reducing the complexity and time involved in obtaining construction permits; centralizing the information and rules on licensing; adopting new bankruptcy and enforcement laws; and reducing non-tax fees and the time needed to connect to electricity grids. The World Bank’s Doing Business 2015 ranks Montenegro 36th—the fifth most favorable rating in the Europe and Central Asia (ECA) region. This was an improvement from the previous rank of 42nd, primarily thanks to a reform in the field of dealing with construction permits. However, in order to deepen the productivity gains, the World Bank’s 2015 Systematic Country Diagnostic report (SCD) for Montenegro calls for a commitment to fiscal discipline and credible fiscal rule, strengthened financial stability, and improved regulatory and institutional flexibility to attract investment and create jobs. Improved skills are needed to prepare Montenegro’s labor force for the challenges of a much more competitive international economy.

RECENT ECONOMIC AND SECTORAL DEVELOPMENTS Growth and External Performance Economic growth accelerated in 2015, led by highway construction and tourism. After growing by 3.4 percent in the first half of 2015, real GDP expanded by 4.2 percent in the third quarter, reaching the highest annual rate in the past two years (according to ESA2010 methodology). The growth in the third quarter was underpinned by investments (21.4 percent year-on-year), as tourism projects and the construction of a priority Bar-Boljare motorway section took off, followed by growth in exports of tourism services (13.5 percent). Government consumption grew as well, while household consumption declined by 1.6 percent, reflecting lower household disposable income. Growth continued in the last quarter of 2015 given the surge in pharmaceuticals, and construction-related manufacturing boosted industrial production, with construction slightly accelerating. Real retail trade also grew, while tourist night-stays expanded by twodigit annual growth rates. The recovery in domestic demand supported inflation in 2015 that amounted to 1.5 percent, up from negative 0.7 percent in 2014, driven by food and clothes, while oil prices continued to decline.

Figure 1. Quarterly GDP Growth 8

5.9

6 4 %

4.2

3.6

3.1

2.5

2

0.7

5.2 3.2 3.0 3.7

2.1

4.2

1.6 0.3

0 -2 -0.5 -2.1-2.5 -3.0 -3.6

-6

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

-4

The external imbalance narrowed in 2015, owing to the strong tourism performance. The current account deficit (CAD) declined to 13.4 percent of GDP compared to 15.2 percent in 2014. This was led by a historically high current account surplus that was driven by a surge in tourism revenues (19.1 percent year-on-year). A positive contribution also came from the improved income balance underpinned by reduced dividend payouts. On the other hand, exports of goods continued to struggle (especially meat exports due to the Russian trade sanctions), which led to a further rise in the trade deficit (to 40.3 percent of GDP). In the same period, net foreign direct investment (FDI) increased to 17.2 percent of GDP thanks to investments, primarily from Austria and Ukarine, in companies and banks.

2011

2012

2013

2014

2015

Source: Statistical Office of Montenegro (MONSTAT).

The Government’s Economic Reform Program for 2015–17 outlines several reform areas for the medium term. Under the current fiscal policy, the Government aims to undertake: (i) further pension system adjustment (abolishing the pension indexation freeze); (ii) tax system reform (tax incentives for the lagging northern region, tax incentives for new investments, increased excises); (iii) health reform (diagnosis-related groups, ambulatory care, palliative care, clinical guidelines and protocols, the optimizing of the health care institutional network); (iv) public sector wage policy reform (equal pay for equal positions and across the branches of government, the elimination of supplements); and (v) a rethinking of decentralization. Changing the collective bargaining agreements and reducing the rigidity of open-ended contracts are being envisaged, along with a review of

Over the past several years, the Government has intensified efforts to promote competitiveness and deepen social sector reforms. These include implementing labor market reform to reduce dismissal costs and simplify hiring; promoting pension system reform to increase the retirement age 2

Montenegro Country Program Snapshot

social benefits disincentives to labor participation. Aligning the education system to labor market needs, along with strengthening active labor market policies (ALMPs) to bring youth and vulnerable groups back to work, is planned. With regard to the business environment, the Government plans to further simplify the issuance of construction permits, strengthen contract enforcement, and improve state asset management through privatization and stateowned enterprise (SOE) restructuring. In addition, addressing nonperforming loan (NPL) resolution, enforcing collateral collection and lengthy court proceedings, and strengthening banking sector supervision are needed in support of new, healthy credit growth.

expenditures (advance payments for the construction of the Bar-Boljare highway) but also a payment of arrears amounting to 2.2 percent of GDP (of pension debt, court case resolutions, and utilities) led to a surge in expenditures (10.9 percent year-on-year). At the same time, revenues dropped by 1.9 percent yearon-year, especially from the value added tax (VAT). Public debt reached 67.9 percent of GDP in 2015. With guarantees included, it reached 78.8 percent of GDP. The main contributor to the rise in public debt was its external component (a €500 million Eurobond and €169 million from the Chinese EXIM Bank disbursement). Figure 2. Public Debt and Fiscal Deficit as Share of GDP Domestic debt Guarantees

% of GDP

90

Foreign debt Fiscal balance (rhs) 0

80

-1

70

-2

60

-3

50

-4

40

-5

30 20

-6

10

-7

0

% of GDP

In July 2015, the Government adopted the Montenegro Development Directions for 2015– 18. This development strategy proposes approaches to a long-term increase in living standards through alignment with the Europe 2020 strategy. Recognizing their available potential, tourism, energy, agriculture, rural development, and the processing industries are emphasized as priority sectors of Montenegro’s development. The total estimated value of planned public and private sector investments during the three-year period amounts to €2.9 billion or close to 81 percent of the current GDP.

-8 2008 2009 2010 2011 2012 2013 2014 2015 est

Source: Ministry of Finance; MONSTAT; World Bank staff calculations. Note: Fiscal balance in 2015 refers to the general government balance.

European Union (EU) accession negotiations with Montenegro have advanced. In 2015, the EU opened six new chapters in the accession negotiations with Montenegro. So far, 22 out of 35 negotiating chapters have been opened. However, according to the EC’s 2015 Report on Montenegro with regard to the EU’s Enlargement Strategy, for the overall negotiation process to advance further, the country’s entire rule of law system needs to deliver results, in particular to establish a track record in the fight against corruption and organized crime and to fully implement the new electoral legislation. Regarding economic criteria, Montenegro is assessed as moderately prepared in developing a functioning market economy; its public debt should be reduced and the competitiveness of industrial production and agriculture improved.

Fiscal policy will remain expansionary in 2016, with the deficit projected to be 6.2 percent of GDP. The Government plans to allocate as much as 9 percent of GDP for capital investments, with public debt expected to rise to 72.3 percent of GDP in 2016. The borrowing requirement in 2016 is around 18 percent of GDP to repay the Eurobond coming up for redemption and to finance the budget deficit. Deficits for 2017–18 have also been raised upward from the earlier estimates presented in the September 2015 Fiscal Guidelines; the Government now is not planning to eliminate the primary deficit by 2018. Deficits for 2017–18 have also been raised from the estimates presented in the September 2015 Fiscal Guidelines, eliminating plans to reach the primary balance by 2018. Ahead of the October 2016 general elections, the Parliament has approved amendments to the Law on Pension and Disability Insurance that will increase all pensions by at least 3 percent and the lowest pensions by 20 percent in July

Fiscal Performance In 2015, the central government cash deficit reached 8 percent of GDP, exceeding the budgeted 6.7 percent of GDP for 2015. A rise in capital

3

Montenegro Country Program Snapshot

2016. Added to the new social spending on lifetime benefits for mothers of three and more children, this means spending another 1.5 percent of GDP in 2016 alone. The wage rise expected from a new law on civil service wages is 0.6 percent of GDP per year.

quarterly. The accumulation of arrears is a particularly significant issue at the local level, and the Government undertook actions to address it in 2015, including issuing state guarantees for loans to nine municipalities to settle the outstanding debt. The budget includes information for the budget year and projections for the two following years. However, there has been little consideration of medium-term projections in the process of entering into multiannual contracts, costing and selecting capital projects, or preparing next year’s budget.

Public Financial Management and the Rule of Law Governance and the rule of law have gradually been strengthened, with further reforms needed in the coming medium-term period. The overall legal framework for efficient public financial management is generally in place. Current accounting and financial reporting standards should be carefully analyzed, including for alignment with international standards. The current cash basis of accounting does not provide sufficient information on assets and liabilities, and the potential for improving financial information via a gradual trajectory to an accrual basis should be assessed. Actions to strengthen debt management systems are also critical.

Budget execution and cash management have been strengthened over the past several years. A Single Treasury Account (STA) was established in 2010, and the vast majority of all receipts and payments of governmental entities are processed through it. The Central Bank (CBCG) acts as the Government’s agent in operating the STA, while a small number of accounts are maintained in private banks, which are reconciled with the STA daily. Controls over payments within budget appropriations have been established and respected in practice.

Recent diagnostic work identified further areas for improvement. These relate to the capture of donor financing in budgeting and reporting central government transfers to local self-governments; data on the collection of tax arrears and on the regular reconciliation of assessments, collections, and arrears; the lack of commitment control on expenditure; the absence of a functional or administrative breakdown of expenditure for comparison across budgets; and the non-disclosure of accounting standards in the annual financial statements. Key strengths of public financial management in Montenegro are in budget classification, budget documentation, public access to information, the transparency of taxpayer obligations, predictability in the availability of funds, and accounts reconciliation and information on resources received by service delivery units. In 2015, the Government continued the fiscal consolidation process through improving tax discipline and rationalizing expenditures, as well as focusing on capital investments and development projects.

Significant improvements have been made in public procurement. The public procurement system is regulated by the Public Procurement Law, which became effective on January 1, 2012. The law was adopted in close collaboration with the EU to create a framework for the further streaming of public expenditures and improvements in the public procurement system. Implementation led to lessons learned, and a prompt effort was made to improve the legislation. The Law on Amendments and Changes to the existing Public Procurement Law was adopted in April 2015. Transparency has been increased, as key public procurement information, such as government procurement plans, bidding opportunities, contract awards, and the data resolution of procurement complaints, is available and easily accessible to the public through the public procurement authorities’ websites. An independent administrative procurement complaints system is in place, represented by the autonomous authority, the Commission for Control in Public Procurement. The Public Procurement Law requires that any complaint or allegation of corruption in public procurement be made directly to the Commission. Open competitive bidding is a default procedure, and the use of other public procurement procedures is defined by the law and other subsidiary regulations.

The improved monitoring and management of arrears through strengthening commitment control and the medium-term budgetary framework remain priority actions. The lack of control over contractual commitments, in particular multi-annual commitments, has led to an accumulation of arrears. Data on arrears are reported

4

Montenegro Country Program Snapshot

Although significant improvements have been introduced into the public procurement system, it is still not recommended for use in any Bankfinanced operation. The efficiency of the system needs to be significantly improved and the level of corruption in the country decreased. The system’s efficiency would be enhanced by the development of an e-procurement platform; the capacity building of public procurement and contracting officials within public procurement institutions; a decrease in the cost of bid preparation by creating a register of bidders; and the further harmonization of legislation with the latest European directives on procurement. The lack of capacity of contracting authorities is evident; higher-quality outcomes in public procurement would be achieved by increasing their capacity through adequate trainings. A new Public Procurement Strategy should be prepared, given that the previous one covered the 2011–15 period. Strengthening policies and procedures against corruption and processing procurement through independent entities would increase the level of trust in the procurement system on the part of the general public, as perception of corruption in public procurement is currently high.

highly concentrated, with the three largest banks accounting for half of total assets and deposits. In particular, the largest bank accounted for 21 percent of assets and 25 percent of deposits. Overall, financial soundness indicators suggest that banking sector recovery still has a long way to go. After declining for four years, credit growth started to recover in 2013 (at 3.1 percent annually in December 2013) but the credit decline resumed in 2014 (-1.9 percent year-on-year). In the end, the recovery of corporate sector loans and an increase in loans to households turned total lending growth to positive in May 2015, which continued throughout the whole year, reaching 0.8 percent in December. Deposits, which became a key source of credit growth, grew by 6 percent year-on-year throughout 2013, reaching 10 percent in 2014 and 13.7 percent in December 2015. The ratio of loans to deposits declined to 90.9 percent, the lowest level since March 2007, after hitting 150 percent in mid-2009. The system’s liquid assets to total asset ratio improved to 28.5 percent in September 2015 after reaching a low of 6.6 percent in March 2009. However, sustaining soundness remains a priority in order to resurrect new lending to creditworthy enterprises. The weakened economy contributed to a significant rise in NPLs, from 3.9 percent in June 2008 to 15.9 percent in December 2014 and 16.4 percent in June 2015, among the highest in the region, which forced banks to increase loan loss provisioning (slightly above 50 percent of NPLs at end-2014 and the first quarter of 2015). In the second half of the year, NPLs marked a declining trend, reaching 12.5 percent in December 2015 owing to the off-loading of NPLs to specialized factoring companies. A capitalization of banks occurred over the 2011–12 period, and in 2013, only two out of 11 banks (totaling €20.5 million) had to be recapitalized by their shareholders. In 2014–15, four banks were recapitalized in the amount of €21.3 million. As a result, the capital adequacy ratio (CAR) of the system stood at 16 percent in September 2015 (after reaching a low of 11.9 percent in mid-2009), above the prudential minimum requirement of 10 percent.

The institutional and regulatory framework for financial controls has been established and gradually strengthened. The Law on Public Internal Financial Control (PIFC) establishes the legal basis in this area. The functions of internal audit and, at a slower rate, financial management and control are being instituted and developed in a large number of public entities. The State Audit Institution (SAI) has made substantial progress over the past several years and is strengthening its capacity further. The SAI continuously improves its audit methodology, its coverage of audited public expenditures, and the types of audits performed. Montenegro has also provided for enhanced parliamentary oversight of public expenditure via its Budget and Finance Committee. Progress in strengthening financial controls is at the core of Chapter 32 of the EU accession process.

Financial Sector The financial sector is dominated by the banking sector, which comprises about 97 percent of financial sector assets. The banking sector currently includes 15 banks, 12 of which are majority foreign owned and account for about 90 percent of banking sector assets. The banking sector remains

Labor Market Conditions Employment outcomes in Montenegro remain a challenge, although there was some improvement in 2015. The employment rate of the

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Montenegro Country Program Snapshot

population aged 15–64 was 53 percent in 2015, with unemployment at over 16 percent of the labor force and the activity rate at 64 percent of the working-age population. Long-term unemployment looms large, representing close to 80 percent of total unemployment. By European standards, these outcomes are highly disappointing. In particular, the employment rate, which is a summary measure of the degree of utilization of labor resources, is well below the EU average of 65 percent. On a positive note, the employment rate increased during the course of the past year by 1 percentage point, due to an increase in the labor force participation rate. Employment outcomes are of particular concern in rural areas and among older and less-educated workers. Many youth neither study nor work.

offsetting the earlier gains. The poverty rate subsequently declined to 8.6 percent in 2013, suggesting that a sustained recovery could continue to push the poverty rate down. The poverty gap followed a similar pattern, hitting its lowest level in 2008 (0.9 percent), after which it reached 2.4 percent in 2013. The Gini coefficient increased from 24.3 in 2010 to 26.2 in 2013, indicating a rise in inequality. Between 2007 and 2013, average consumption growth for the bottom 40 percent was positive and in line with the growth of consumption for the overall population, but it showed substantial variation over the period. Average consumption growth was 2.5 percent, with the bottom 40 percent of the population growing slightly less than the top 60 percent. Earlier in the period, between 2007 and 2009, the bottom 40 percent actually experienced more gains in consumption than the top 60 percent. However, during the following two years of economic recession, the bottom two quintiles were more adversely affected. Consumption growth resumed between 2011 and 2013 for the top quintiles but remained slightly negative for the bottom two quintiles.

The main labor market issue in Montenegro is structural, referring to the considerable underutilization of labor resources arising from weak labor demand. This manifests in persistently high unemployment and an extremely low labor force participation rate that in turn translate into lower output and incomes. Entry into the labor market is difficult and the chances of escaping unemployment are poor. Supply side factors play an important role in the low employment rate. First, workers tend to withdraw early from the labor force, which is facilitated by the design of the pension system (both old age and disability). Second, a large proportion of the able-bodied working-age population is economically inactive. Third, many of the unemployed and the inactive do not have the skills necessary to find employment. Widespread informal employment is an additional challenge.

Social assistance performs well in terms of targeting accuracy, but its coverage is low. According to the 2011 Household Budget Survey, up to 70 percent of all spending on social assistance reaches the poorest population quintile, but it covers only 5.4 percent of the total population and only 19 percent of the poorest quintile. The coverage of the last resort social assistance program is even smaller— 4.6 percent of the total population and 17 percent of the poorest quintile. At the same time, it is accurately targeted to the poor, with over 77 percent of the budget for this program going to the poorest quintile. The recently adopted Social Welfare and Child Protection Law addresses the risks of benefit dependency and possible work disincentives through changes in benefit design along with incentives and administrative requirements for the activation of able-bodied recipients.

Poverty and Social Protection The economic crisis reversed the gains in poverty reduction achieved since independence, with the poverty rate in 2012 returning to the 2006 level. Poverty started to decline again in 2013.1 Although poverty reduction mirrored economic growth before and during the crisis, the weak and volatile growth of recent years has not had a sustained impact on reducing poverty. Poverty rates before the crisis fell by more than 6 percentage points, from 11.2 percent in 2005 to 4.9 percent in 2008. However, the global crisis and resulting deterioration in growth led to a significant increase in the poverty rate to 11.3 percent in 2012, thus 1

Health Developments Montenegrin health indicators have improved faster in the past decade than have those of the newer EU members (since 2004 or 2007), effectively closing the 5–10 percent gap in life

No new data on poverty have been available since 2013. 6

Montenegro Country Program Snapshot

expectancy and mortality that existed in 2000. In Montenegro, life expectancy at birth increased by 2.4 years between 2000 and 2013 (from 74.1 to 76.5). In the same period, infant mortality decreased by more than half (from 11.1 to 4.4 per 1,000 live births), and the standardized mortality rate (all causes) was reduced from 953 to 846 per 100,000 inhabitants.

ii) the strengthening of governance and resources to control the pharmaceuticals market and enforce the laws to better control the total costs of both multi-source and single-source drugs; and address delays in the licensing of pharmaceuticals, which limit competition in the drug market, and delays in tender procedures, which result in shortages of pharmaceuticals in hospitals and out-patient sectors

In spite of seemingly good progress in health outcomes and initial reforms in primary care, a substantial health system reform agenda is needed in Montenegro. The current health service delivery system is still publicly financed and owned and hospital centered, with extremely fragmented governance and services that are focused on individual treatment of acute conditions and minimal prevention. Despite some efforts at cost control, the system continues to accumulate debt. The total debt of the Health Insurance Fund (HIF) and health care institutions at the end of 2013 was €34.0 million (nearly 1 percent of GDP), a 36 percent increase from 2012. Expenditures for drugs, treatment abroad, and sick leave compensation are the main drivers of increased debts, each of which suffers from weaknesses in the regulatory framework and oversight mechanisms.

iii) the reorganization of the service delivery network to better define the roles, functions, and tasks of the different health facilities to fit new population needs and adjust to new technologies iv) the improvement of the health technology assessment for new medicines and medical devices v) further improvements in the quality of care. The growing body of care pathways and clinical guidelines will progressively contribute to build a basic package of services and at the same time, define a gold standard for quality control. The World Bank will continue its support to the Ministry of Health in pursuing reforms through the Second Health Project (MHSIP2), currently under preparation.

A number of reforms have been initiated to improve the access and efficiency of the health sector. Since 2005, the Ministry of Health has introduced several primary health care reforms. These reforms have included the introduction of a “Chosen Doctor” model, whereby primary care patients are registered with a particular primary physician who acts as a gatekeeper to reduce overreliance on specialists and hospital care. Family medicine training and specialization have also been introduced and at the same time, the financing of primary care doctors has changed from salaried to a combination of capitation and fee-for-service. However, the collective agreement of 2011 has undermined full implementation of financing reform.

Education Education outcomes are not commensurate with the level of public expenditure in this sector. The results of the Program for International Student Assessment (PISA) revealed continued challenges in terms of improving the skills of 15-year-olds in reading, mathematics, and science. PISA is a highly respected international tool for a comparative assessment of these basic academic skills. Montenegro has participated in the PISA 2006, 2009, 2012, and 2015 tests. The results of the 2015 tests will not be available until December 2016; however, according to the 2012 PISA assessment, Montenegro ranked only 54th out of 65 participating countries/economies, mainly members of the OECD (Organisation for Economic Co-operation and Development). These results continue to underscore significant weaknesses and inefficiencies in teaching and/or curricular content at the primary and early secondary education levels. Comparable to other countries in Europe, Montenegro spent an average of 4.5 percent of GDP on public education during 2006–10 and succeeded in enrolling almost all

All of these reforms still need support and additional interventions to be fully operational. Moreover, in this new phase, the health reform will need to focus on: i)

The prevention (primary prevention) and management of noncommunicable diseases (NCDs) (secondary prevention), which account for 95 percent of all deaths in Montenegro

7

Montenegro Country Program Snapshot

(non-Roma) children in primary education, with gross enrollment rates just below the EU27 average of 5 percent. In secondary education, the overall net enrollment rate of 87.6 percent is close to the OECD average. Accordingly, the school reform process is geared toward ensuring improved quality in learning and academic outcomes for students, starting with elementary schools.

adapted and enhanced to meet the needs of the country’s economy and society.

Energy Although coverage of electricity is good, quality is inconsistent. One hundred percent of Montenegro’s population has access to electricity. The World Economic Forum ranks Montenegro 85th out of 144 countries on quality of electricity supply, close to that of its neighbors (Serbia and Albania, ranked 76th and 79th, respectively) but well below Croatia (ranked 40). Energy connectivity needs to be improved both internally and within the region. The Government believes that with strengthened tariff policy and institutions, new investments, and expanded supply, energy could over the long term also become an important export industry. That said, Montenegro is facing multiple and pressing energy challenges.

The World Bank approved a Higher Education

and Research for Innovation and Competitiveness (HERIC) Project in January

2012. The aim of the project is to strengthen the quality and relevance of higher education and research in Montenegro by creating a transparent finance system and a coherent quality assurance system, and by strengthening the research and development capabilities of both the academic community and the private sector. Reflecting the fact that economic competitiveness is highly dependent on the skills of the workforce and the reality that as a small economy, Montenegro is unable to excel in all fields, the Government has chosen a targeted program of reforms and investments in higher education and research to maximize the system’s potential.

The power sector is aging. The inherited industrial structure relies on high energy consumption, high household demand, and inefficient use (particularly with respect to electricity for heating purposes), which result in the combination of high energy intensity and low energy productivity. The system presents high transmission and distribution (T&D) losses due to an under-maintained grid, significant non-payment and theft of electricity, and sizable (18– 20 percent) technical and commercial losses from the T&D network (transmission losses of about 4 percent and distribution losses of about 14–16 percent) compared to average T&D losses of 6–8 percent.

The HERIC project also serves to anchor Montenegro’s (higher) education policies in existing European frameworks and standards, requiring consistent (and independent) quality assurance assessments and promoting integration into the broader European higher education research area. Without fostering the exchange of students and researchers, the Montenegrin education system would neither meet labor market demands nor be able to exploit the potential opportunities of a reinvigorated regional economy. Already, there is both a mismatch of skills and a shortage of highly skilled employees that together constrain growth and hold back socioeconomic development.

Montenegro depends on electricity imports, while the usage of renewable energy resources is low. From 2005 to 2013, Montenegro met 29 percent of its electricity needs through imports.2 Exceptions were 2010, a year with extremely good hydrological conditions, and 2013, two years when the demand of the main industrial electricity off-takers declined, leaving the country’s power system able to fully cover domestic needs—the only times since 1990. Though the country has significant potential for the development of renewable energy sources (including biomass, new hydro, wind, and solar), almost no construction has occurred. Support for the utilization of renewable energy sources needs to be continued in the future to fully exploit the abundant natural

The HERIC project measures the skills mismatch, creates an environment for datadriven policy responses, and supports the implementation of effective response mechanisms. It also promotes the development of Montenegro’s domestic research capacity, thereby creating an environment in which the most relevant technologies and knowledge from around the world can be

2

Statistical Office of Montenegro (MONSTAT). 8

Montenegro Country Program Snapshot

potential for increased generation. In recent years, an intensive effort has been made toward the creation of a favorable regulatory framework for investments in the renewable energy sector. Progress can be seen in the tendering of a number of small hydropower plant locations and in preparations for the construction of the country’s first wind park. Apart from the abundant technical hydropower potential (around 4,000 GWh), Montenegro’s energy strategy3 envisages the construction of Pljevlja II Thermal Power Plant (225 MW), a replacement of the existing thermal plant.

Through the Montenegro Energy Efficiency Project (MEEP), the World Bank has supported the Government’s efforts to improve energyefficiency performance in public sector buildings, energy-efficiency implementation practices and capacity in public institutions, and energy-efficiency service providers in Montenegro. MEEP is investing in energy saving retrofits in about 27 schools and hospitals. It is insulating roofs and buildings and upgrading heating systems, substations, and networks. Facilities were selected for retrofits based on their energy savings potential, geographic distribution, number of users, and social and demographic impact. So far, the project has helped with the retrofitting of 20 education and health sector buildings. Social surveys of users show very high end-user satisfaction with the results as well as increased awareness of the importance of energy efficiency. Technical monitoring and evaluation before and after the investment has verified significant energy savings attributable to energyefficiency investments in targeted public sector buildings; savings in heating energy have ranged between 30 and 67 percent, with an average of 46.7 percent. The World Bank is also preparing a Western Balkans Investment Facility–funded study on biomass-based heating that will be finalized in 2016. The study will identify viable investment options and policy measures to increase the use of biomass for heating in the Western Balkan region, including Montenegro.

The topology of the existing transmission grid creates overloads and overall system instability.4 In order to increase the security of supply, enhance interconnectivity with neighboring countries, further reduce losses (currently at 3–4 percent), and accommodate new generation facilities, significant investments in the transmission grid, estimated at more than €240 million,5 are required until 2025. A major step forward would be the completion of the 500 kV undersea cable to Italy (1,000 MW), whose construction recently started on the Italian coast. In addition, the Energy Community identified the 400 kV interconnection between Montenegro, Serbia, and Bosnia and Herzegovina to be one of the “Projects of Energy Community Interest,” or PECIs, with commissioning planned for 2020. The Montenegrin economy has high energy intensity measured as energy used per unit of gross domestic product. This is primarily due to the significant consumption in the aluminum smelting process, which is using outdated and far from energy-efficient technology. But energy consumption is also inefficient among households, many public buildings, and in the services sectors, especially with regard to heating—a very high share of electric energy is used for space heating, mainly because of low electricity prices. Although energy intensity in 2012 at 0.255 tons of oil equivalent (toe) per thousand U.S. dollars was 30 percent lower than in 2005, it was still 3.3 times higher than the EU28 average.6

Environment Balancing investments and environmental sustainability is a central and multifaceted challenge of economic policy making, particularly given the critical importance of tourism. Constitutionally defined as an “Ecological State,” about 9 percent of the territory of Montenegro is protected—but not always managed accordingly. Civil society has been critical of the currently insufficient public debate on the potential effects of large-scale public infrastructure

Government of Montenegro, “Energy Strategy of Montenegro until 2030” (Podgorica: Ministry of Economy, 2014). 4 In case of the unavailability of the 400 kV grid, as the main 400 kV and 220 kV lines are running in parallel with different transmission capacities (1,330 MVA vs. 300 MVA).

Ibid. International Energy Agency, “World Energy Statistics and Balances,” http://www.iea.org/statistics/relateddatabases/worldene rgystatisticsandbalances.

3

5 6

9

Montenegro Country Program Snapshot

investments (in energy and transport) on the environment.

polluting industries—pose risks not just to the immediate environment but also to the public health of surrounding communities and Montenegro’s unique natural resources, including through groundwater contamination.

Increased tourism and rapid economic growth have underscored the urgent need for significant improvements in water and solid waste services. Facing threats of water shortages from rapid development, the Government and municipalities have invested in, with World Bank support, a regional pipeline network that currently supplies five coastal municipalities with water from Lake Skadar, a key watershed and tourist site shared with Albania. This network, to be expanded to other less-served coastal areas, has significantly improved water connections and water security. Inadequate sanitation services and unsanitary disposal in coastal areas have been identified as key challenges requiring additional efforts to upgrade the sanitation infrastructure and strengthen the regulation, enforcement, and delivery of solid waste services. Also with Bank support, Montenegrin authorities have made progress on developing multi-municipal solid waste management arrangements, investing in modern waste disposal, and closing some unsanitary waste sites. These efforts have resulted in a substantial increase in the sanitary landfill capacity.

In November 2014, with World Bank support, the authorities started a €50 million investment program for remediating the most heavily polluted sites and strengthening regulations and the capacity to manage industrial and hazardous waste. This program involves, depending on the findings of site-specific plans, the closure and capping of sites, water management measures, and/or the removal of hazardous waste. Under this program, the Government further aims to develop and enforce regulations on the separation of hazardous waste and waste categories, and on the segregated disposal of these waste streams in line with EU directives. Recognizing that disposal options for some hazardous waste are limited, the Government is also looking at options for developing domestic capacity for hazardous waste disposal.

Agriculture and Rural Development Despite having abundant water resources, a favorable climate, and a strong demand for agricultural products, Montenegro faces structural and institutional challenges that undermine further growth in the agriculture sector. Farming is dominated by small-scale operations that produce limited yields, owing to insufficient knowledge, outdated technologies, and weak supply chains. Investment capital and government extension services are limited, and agriculture institutions and practices lack compliance with EU and international standards. Because of these weaknesses, agriculture has not been able to respond to the increasing demand, which includes seasonal tourism, and the agriculture deficit as a share of the goods trade increased from 21 to 27 percent from 2005 to 2012.

Efforts to protect the water quality of Lake Skadar remain a key policy challenge. Overfishing, as well as pollution from recent unchecked development around the lake and industrial waste from a nearby aluminum plant, poses increasing threats to the lake’s water quality and the natural beauty of the region as a whole. Given these threats, the Montenegrin Government and the Albanian authorities, with World Bank support, have prioritized the effective cross-border management of the growth, pollution, and commercial uses of Lake Skadar. Poorly regulated growth over several decades has left a legacy of industrial pollution, often in close proximity to major cities and tourist centers. Many disposal sites associated with heavy industries, such as aluminum and steel factories, energy plants, and shipyards, have become heavily polluted with ash, waste containing heavy metals, and other hazardous waste. Enforcement of environmental regulations on industrial pollution is still fairly weak, and waste disposal and treatment practices are below EU and international standards. Existing pollution at these sites—and in some cases, the continued poorly regulated operations of

Modernizing agriculture, upgrading production processes, and establishing EU-compliant food safety standards are important factors for political, economic, and social progress. These efforts can help to (i) accelerate the EU integration process; (ii) generate employment; (iii) increase export earnings/reduce imports; (iv) raise living standards, especially in the poorer rural regions of the country’s mountainous north; and (v) improve

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Montenegro Country Program Snapshot

natural resource management and strengthen climate resilience.

3. Additional Financing EU/IPA Agriculture

The World Bank supports Montenegro in improving its capacity to deliver, manage, and monitor agricultural assistance, and particularly to access grant funding under the EU’s Instrument for Pre-Accession for Rural Development (IPARD). The World Bank agricultural portfolio includes the following projects under implementation:

€4.7 million through the World Bank to support the upgrading of the agro-processing industry to EU standards. The grant became effective on February 23, 2016, and the first call for proposals was launched on March 1, 2016.

and Rural Development Institution Building Project. The EU is financing a second grant of

Discussions about a potential follow-up to the MIDAS project are ongoing, as the Ministry of Agriculture and Rural Development is strongly interested in building on the results of the current project, and agriculture is identified as one of the three priority areas of the Montenegro Government.

1. The Montenegro Institutional Development

and Agricultural Strengthening Project

(MIDAS), funded with an International Bank for Reconstruction and Development (IBRD) loan of €11 million and a Global Environment Facility (GEF) grant of US$4 million, has assisted in establishing the capacity to implement an IPARD-compatible system, including supporting the Ministry of Agriculture and Rural Development in preparing the IPARD accreditation package as well as the rehabilitation of the premises of the Paying Agency and its IT systems, an IPARD complaint monitoring system, a farm registry, and a pilot IPARD-like grant scheme supporting investments in agriculture holdings and the introduction of agrienvironmental measures through five rounds of grants. Almost 800 farmers, 60 percent of whom live in the poorer north, received IPARD-like grants to enhance their agricultural production. The project also supported the strengthening of the country’s Food Safety System, including the development of the regulatory framework, the upgrading of national reference labs (the Veterinary Laboratory in Podgorica and the Institute of Marine Biology in Kotor), and the construction of the first Border Inspection Post in Bar.

THE WORLD BANK PROGRAM IN MONTENEGRO Montenegro joined the World Bank Group as an independent country in January 2007. Before this time, the Bank had implemented a discrete program of lending and analytical work for Montenegro after the State Union of Serbia and Montenegro joined the World Bank in 2001. Over the past 10 years, the World Bank has supported Montenegro by financing 14 programs in the total amount of about US$292 million. In January 2011, the Board approved a US$216 million Country Partnership Strategy (CPS) for FY11–14, and in May 2014 extended it to FY15. The CPS FY11–15 was client driven and reflected Montenegro’s status as an upper-middle-income country with well-defined development priorities. It focused on: (i) strengthening institutions and competitiveness in line with EU accession requirements; and (ii) improving environmental management, including by reducing the costs of environmental problems. The Government has requested that the Bank continue to focus its support in areas where it had previously been engaged and/or gained applicable regional or global experience.

Agriculture and Rural Development Institution Building Project.

2. EU/IPA

The EU is financing a grant of €3.4 million through the World Bank to increase the experience of Montenegrin authorities with the core rules of IPARD and to improve the productivity of a targeted number of agriculture holdings. The project, effective since December 4, 2014, has currently awarded 291 IPARD-like grants to agriculture holdings and is supporting the development of an IPARD complaint monitoring system.

Some of the key accomplishments of the FY11– 15 CPS include the renovation and equipping of 30 public health care centers and an enhancement of the business investment climate by decreasing the average time needed to issue a construction permit from six to two months and reducing the average registration time from 25 to eight days. With Bank support under the Institutional Development and Agriculture Strengthening Project, Montenegro completed

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Montenegro Country Program Snapshot

its first Agricultural Census in 40 years, which underpins the further development of the national rural development program. The project also supported the capacity building of government departments involved in the design, preparation, and implementation of the IPARD-like grants and training for farmers in the process of applying for these grants. In five rounds of grants since the beginning of the project, 1,465 applications have been received and 747 have been approved, and all the grant funds available (amounting to around €7 million) have been contracted, exceeding the target of €5 million. So far under the Energy Efficiency Project, 18 public sector buildings have been retrofitted to improve their energy efficiency, resulting in an approximate 50 percent reduction in energy consumption and related operating costs. In addition, working and service conditions in public facilities have been improved in the education and health care sectors.

The World Bank currently supports four operations in Montenegro at a total value of US$120.25 million. Areas of support include agriculture and rural development, higher education, energy efficiency, and industrial waste management, while the operation in land administration in the amount of US$16.20 million successfully closed on February 29, 2016. In addition, the portfolio contains an Institutional Development Fund (IDF) grant, Capacity Building for Effective Audit Oversight ($0.5 million), and two EU-supported trust funds in agriculture and rural development (US$9.6 million total).The Bank is also currently preparing a project related to revenue administration reform. A new five-year Country Partnership Framework (CPF FY16–20) is currently under preparation and is expected to be presented to the Board of Directors by the end of June 2016. The new CPF will focus on: 1) enhancing resilience to shocks and volatility; and 2) enabling inclusive access to economic opportunities and jobs.

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Montenegro Country Program Snapshot

MAP OF MONTENEGRO

Montenegro Country Program Snapshot

PROJECT BRIEFS

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Montenegro Country Program Snapshot

MONTENEGRO: ENERGY EFFICIENCY PROJECT Key Dates: Original Credit (US$9.4 million) approved: December 9, 2008 Effective: February 24, 2009 Additional Financing (US$ 6.8 million) Approved: December 23, 2013 Effective: March 5, 2014 Closing: March 30, 2017 Financing in million US Dollars*:

Financier

Financing

IBRD Credit

16.2

Total Project Cost

16.2

World Bank Disbursements, million US Dollars*:

Total IBRD Credit

16.2

Disbursed

Undisbursed

11.3

4.9

*as of March 2016 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement.

Studies in the mid-2000s determined that energy consumption in Montenegro was very high and the awareness of ways to achieve energy efficiency low when compared to trends and practices in European Union (EU) countries. According to a 2005 report, energy consumption per dollar of GDP in Serbia and Montenegro was twice as high as in Europe. Montenegro’s long-term Energy Development Strategy suggested that energy intensity in Montenegro could be more than five times higher than the EU15 average. To confront these challenges and align practices to those of the EU, the Government developed the Montenegro Energy Efficiency Plan (MEEP) for 2008–12, supporting the development of energy-efficiency programs in all economic sectors. To complement this, the Ministry of Education and the Ministry of Health initiated programs to improve energy efficiency in public facilities, namely schools and hospitals. The Project Development Objective of MEEP is to improve energy-efficiency performance in public sector buildings to provide a demonstrated basis of ways to improve energy-efficiency implementation practices and capacity in public institutions and energyefficiency service providers in Montenegro. MEEP is investing in energy saving retrofits in about 27 schools and hospitals. It is insulating roofs and buildings and upgrading heating systems, substations, and networks. Facilities were selected for retrofits based on their energy savings potential, geographic distribution, number of users, and social and demographic impact.

Results achieved: To date, the following results have been achieved:  Twenty education and health sector buildings have been retrofitted.  Technical monitoring and evaluation before and after the investment has verified significant energy savings attributable to energy-efficiency investments in targeted public sector buildings; savings in heating energy have ranged between 30 and 67 percent, with an average of 46.7 percent.  Social surveys of users show very high end-user satisfaction with the results as well as increased awareness of the importance of energy efficiency. Key Partners: The Bank worked closely with the Montenegro Energy Efficiency Unit, Ministry of Education, and Ministry of Health to ensure the project was appropriately designed and complementary to Government and donor programs. All subprojects envisaged in the education sector (nine) were completed under the original loan. Collaboration with project groups within the Ministry of Health continues during the remaining implementation period of the project, given that the subprojects to be rehabilitated under the Additional Financing loan are only in the health sector. Key Development Partners: The Bank has closely coordinated the activities of donors supporting energy efficiency in Montenegro, including, inter alia, the German Agency for Technical Cooperation (GTZ), which financed some of the energy audits for MEEP. MEEP also served as a pilot project for possible replication among other partners. The German Development Bank (KfW) has agreed with the Government of Montenegro to build on MEEP and invest €13 million in energy-efficiency investments in 30 schools. This project is now under implementation. 15

Montenegro Country Program Snapshot

MONTENEGRO: INSTITUTIONAL DEVELOPMENT AND AGRICULTURE STRENGTHENING PROJECT (MIDAS) Key Dates: Approved: April 24, 2009 Effective: July 23, 2009 Closing: March 30, 2016 Financing in million US Dollars*:

Financier

Financing

IBRD GEF Govt. of Montenegro

15.7 4.0 4.2

Total Project Cost

23.9

World Bank Disbursements, million US Dollars*:

Total

Disbursed

Undisbursed

IBRD 12.1 11.4 0.7 GEF 4.0 3.5 0.5 * as of March 2016 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement.

Agriculture accounts for about 10 percent of GDP and 5 percent of exports for the country and is important for employment and poverty reduction, particularly as over one-half of the poorest fifth of Montenegrins live in rural areas. The quality and productivity of farming is, however, undermined by limited capital, outdated technology, and weak supply chains; underdeveloped standards in agriculture and food safety; and inadequate extension services. To ensure competitiveness and to comply with EU requirements, the Government of Montenegro has prioritized upgrading agricultural practices and standards, as well as strengthening the capacity of the Ministry of Agriculture and Rural Development (MARD), to allow access to financial assistance under the EU’s Instrument for PreAccession for Rural Development (IPARD). In addition, Montenegro is seeking to strengthen its capacity in agro-environmental extension to mainstream sustainable resource management practices in vulnerable areas while tapping into eco-tourism opportunities, including in the northern mountainous regions, which have limited livelihood options. The Project Development Objective is to improve the delivery of government assistance for sustainable agriculture and rural development consistent with the EU’s pre-accession requirements. The Global Environment Objective is to mainstream sustainable land use and natural resource management into MARD’s policies, programs, and investments. The project’s specific aims include building capacity within MARD to track and evaluate IPARD funding, integrating EU-compliant measures into the ministry’s support programs, and upgrading the food safety system to EU standards. To help achieve these goals while supporting farm competitiveness and rural income diversification, MIDAS finances a grant component that will be implemented through the same structures as the future IPARD program. The project also incorporates environmental activities within Montenegro’s Advisory Services to improve sustainable land use and natural resource management throughout the country. Results achieved: All activities have been completed. Key completed activities include:  The first Agricultural Census in 40 years was successfully implemented throughout the country in June 2010. Its results have been crucial to underpinning the preparation of Montenegro’s rural development program.  Successful implementation of five MIDAS grants programs supporting IPARD-like investments in agriculture holdings and the introduction of agro-environmental measures is completed, resulting in increased knowledge within both the institutions involved and the beneficiaries in receipt of funds. A significant share of these investments contributed to improve environmental practices in agriculture, including but not limited to the adoption of Good Agricultural Practices. This is being followed by new calls funded by the EU through a separate trust funds administered by the World Bank.  An IPARD accreditation package has been prepared and submitted for review, and the premises of the Paying Agency have been rehabilitated according to EU requirements.  An EU-required IT system, the Farm Registry and Accounting Software System, has been developed.  Support to the Veterinary Lab and the Institute of Marine Biology has been extended, the construction of a Border Inspection Post in Bar is completed, and technical assistance for the Veterinary Administration has been implemented, contributing to the establishment of an EU-compliant food safety system. Key Partners: The lead implementing agency responsible for project management is the Ministry of Agriculture and Rural Development (MARD), which also chairs a Project Steering Committee that ensures inter-institutional coordination and overall project oversight. Key Development Partners: The project was designed in close consultation with the European Commission and the EU delegation in Montenegro to ensure cohesion with assistance under the Instrument for Pre-Accession. The project has also closely coordinated with the Danish Development Agency DANIDA, providing grants to farmers in support of organic production. 16

Montenegro Country Program Snapshot

MONTENEGRO: HIGHER EDUCATION RESEARCH FOR INNOVATION AND COMPETITIVENESS PROJECT (HERIC) Key Dates: Approved: January 24, 2012 Effective: May 21, 2012 Closing: March 30, 2017 Financing in million US Dollars*:

Financier

Financing

IBRD Total Project Cost

15.98 15.98

World Bank Disbursements, million US Dollars*: IBRD *as of March 2016

Total

Disbursed

Undisbursed

15.98

8.7

6.5

Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement.

Although gross tertiary education enrollments are relatively high at 56 percent (according UNESCO, 2010–2011) the Montenegrin higher education system faces funding and institutional quality constraints, and reforms are ongoing to align the system with EU practices. The university density per 100,000 inhabitants in Montenegro is 2.1, which is in line with the norms of the region, given the rates of 3.0 in Serbia, 2.6 in Romania, 1.8 in Bulgaria, and 1.1 in FYR Macedonia, for instance. Montenegro’s higher education system suffers from structural issues similar to those of other former socialist countries, including a highly decentralized administrative structure across independent faculties and a funding model that remains inputdriven and based on academic and administrative staff costs, where the faculties receive funding budgets based on the salaries of their staff members. Moreover, academic staff members have until recently been allowed to supplement their income through the enrollments of fee-paying students, who are admitted without government supports. As a result, the incentive structure provided by the existing funding norms promote over-enrollment, a focus on teaching over research (for which supplemental funding is almost nonexistent and which must be done in addition to managing full teaching loads, as opposed to being in balance with teaching), and minimal concern about outcomes and quality. These existing structural norms have led to over-enrollment, deficiencies in the quality and management of teaching and research activities, and comparatively high student dropout rates. Reforms based on project-funded research and technical advisory services have begun being implemented to reduce and ultimately eliminate many of these counterproductive, often regressive, practices. The Project Development Objective is to strengthen the quality and relevance of higher education and research in Montenegro through reforming the higher education finance and quality assurance systems and by strengthening research and development capabilities. Expected results:  Implementation of a new higher education funding model  National Qualifications Framework developed and adopted  Establishment of one pilot Center of Excellence, promoting innovation and world-class research  20 grants competitively awarded to faculties, programs, and institutions  Establishment of an office within the Ministry of Education and Sports to coordinate bilateral and multilateral agreement programs available to Montenegrin students and academic staff  60 students receiving scholarships for master’s, doctoral, and postdoctoral studies abroad  235 Montenegrin researchers having participated in international research and development projects  Development of a tested framework for future world-class research Centers of Excellence Key Partners: The Ministry of Education and the Ministry of Science would be the main HERIC project implementing agencies. Project implementation would rely primarily on the existing structures of these ministries, and the activities proposed under the project would be part of the everyday work of their staff. Key Development Partners: EU delegation.

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Montenegro Country Program Snapshot

MONTENEGRO: INDUSTRIAL WASTE MANAGEMENT AND CLEANUP PROJECT Key Dates: Approved: September 19, 2014 Effective: November 17, 2014 Closing: June 30, 2019 Financing in million US Dollars*:

Financier

Financing

IBRD Total Project Cost World Bank Disbursements, million US Dollars*:

Total IBRD *as of March 2016

68.9

68.9 68.9

Disbursed

Undisbursed

2.4

66.1

Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement.

Industrial waste site remediation and sustainable waste management are some of the key underlying principles of future economic growth in the tourism sector of Montenegro. The partnership between the Government of Montenegro and the World Bank on this project will help Montenegro to address some of the most critical environmental hot spots that currently pose a threat not only to the environment but also to public health and some of the unique natural resources of the country. The project will achieve its objective through: (i) the development and implementation of a remediation investment program for selected legacy industrial waste disposal sites; and (ii) related to these interventions, support for institutions and related industries in bringing the management of industrial hazardous waste in compliance with Montenegrin legislation. With the support of this project, the selected sites will be fully remediated and future hazardous waste from industries related to these sites will be disposed of in compliance with Montenegrin and EU legislation. Strengthening the regulatory framework and supporting the development of infrastructure for management and for the proper and sustainable disposal of ongoing industrial hazardous waste production will also benefit other waste generators and are important elements of the project. After the Project Launch Workshop in February 2015, a key priority became the final preparations of the shipyard remediation in Bijela, one of the four project sites. This large work is expected to be tendered in spring 2016. The Project Development Objective is to reduce the contamination of Montenegro’s natural resources from selected industrial waste disposal sites and also reduce the public health risks due to exposure to this contamination. Expected Results:  Mining dump site at Gradac closed and remediated under the project  Power sector waste disposal site at Pljevlja closed and remediated under the project  Cleanup of Shipyard Bijela site  Industrial dump sites at KAP closed and remediated under the project  Support for the further development of a national registration system for industrial and hazardous waste management Key Partners: The Ministry of Sustainable Development and Environment Protection Agency.

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Montenegro Country Program Snapshot

RECENTLY CLOSED PROJECTS

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Montenegro Country Program Snapshot

MONTENEGRO: LAND ADMINISTRATION AND MANAGEMENT PROJECT (LAMP) Key Dates: Approved: December 9, 2008 Effective: February 29, 2009 Closing: February 29, 2016 Financing in million US Dollars*:

Financier

Financing

IBRD Loan Govt. of Montenegro

16.2 16.0

Total Project Cost

32.2

World Bank Disbursements, million US Dollars*: IBRD Loan

Total

Disbursed

Undisbursed

16.20

14.15

0.00

*Client Connection as of March 2016 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement.

Despite the fact that Montenegro continues to improve its Doing Business ranking by dropping from 80 in 2008 to 46 in 2016, registering property (ranked 79) and dealing with construction permits (ranked 91) remain important obstacles to the faster development of the private sector. Municipalities face difficulties providing adequate property and permit services, particularly construction permits, mainly due to outdated municipal spatial plans, inadequate technical capacity, and the heavy regulatory burden. The Land Administration and Management Project was designed to specifically respond to these needs of updated spatial plans and improved capacity at the local and central levels. The Project Development Objective was to improve the efficiency of Montenegro’s permit and property registration systems, with a view to facilitating the public’s access to information on property and streamlining zoning and other legal requirements to develop land and start businesses. The project is particularly focused on urban areas. To achieve this objective, the project supported the Real Estate Administration Department (READ) to improve real estate administration, including streamlining registration services, developing an information system, and completing the real estate cadastre (REC). Assistance was also provided to improve capacity in spatial planning in the Ministry of Sustainable Development and Tourism (MSDT) and in the municipalities, with a special focus on the poorer municipalities in Montenegro’s northern regions. A key goal of the support to the MSDT and municipalities was to improve construction permit and inspection procedures. The project closed on February 29, 2016 with a satisfactory achievement of the PDO. The project has renovated 14 local READ offices and better equipped all offices. Registration procedures were streamlined and the backlog of cases reduced through improved procedures and better case management. The backlog dropped from 16.5 percent of all cases at the start of the project to under 8 percent at the close. READ’s IT system was upgraded and web services added for notaries and other professional users. 120,000 hectares of the real estate cadastre have been completed, which is part of the improvements in registration services and provides a base layer of data for spatial planning. The average time to register a transaction has been reduced from 25 days to fewer than eight days. At the same time, READ has seen increased customer satisfaction with the registration services from 4.18 to 4.21. As support to the spatial planning activities within the MSDT, the project has contributed to the preparation of several new guide books for planning; developed seven spatial urban plans (SUPs) and 22 detailed urban plans (DUPs); increased the number of people participating in the urban planning process; and trained 2,497 staff for software use and best practices for planning and licensing processes. Overall, the project has helped to improve the planning and licensing process by streamlining the procedures for the issuance of construction permits, including by decreasing the time to receive a permit from 6–12 months to 28–43 days. This was done by implementing reforms in northern municipalities to facilitate the issuance of permits, training staff that deal with the planning and licensing processes, and supporting the procurement of IT equipment and software to build a modern, efficient system for planning and licensing in Montenegro. Key Partners: The Bank team worked closely with the Ministry of Sustainable Development and Tourism (MSDT), which was responsible for the project component aimed at improving planning and licensing, and the Real Estate and Administration Department (READ), which was responsible for the component focused on improving real estate administration. The 21 municipalities within Montenegro were also key partners and beneficiaries. Key Development Partners: The Bank designed the project in close consultation with GTZ and the United Nations Development Programme (UNDP), which provided support to urban and spatial planning.

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Montenegro Country Program Snapshot

The World Bank Country Office in Montenegro Bulevar Svetog Petra Cetinjskog 6 81000 Podgorica, Montenegro Phone: (+382-20) 403-295, Phone/Fax: (+382-20) 665-353 http:// www.worldbank.org.me

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